Lacklustre demand drags Indian factory growth to two-year low in December

BENGALURU: India’s manufacturing sector expansion slowed to its weakest pace in two years in December as demand softened and firms curbed production, according to a business survey that also showed hiring had slowed to a near standstill.

The cooling in factory activity adds to signs the world’s fastest-growing major economy is entering a slower phase after posting growth of more than 8% in the July–September quarter.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI) compiled by S&P Global fell to 55.0 in December from 56.6 in November, lower than a preliminary estimate of 55.7.

That marks the lowest reading since December 2023.

While the index has now remained above the 50 threshold separating expansion from contraction for more than four years, the latest dip underscores a clear loss of momentum.

Weaker domestic demand was the main drag, resulting in new orders - a key barometer of factory activity - rising at their slowest pace in two years.

The easing in demand fed into labour markets.

Hiring barely increased in December, with the employment index slipping to its weakest level since early 2024 and hovering just above the 50 mark, indicating near-stagnation in job creation.

Factory production also cooled sharply, rising at its slowest pace in 38 months, with companies citing lower customer numbers even as overall expansion remained solid by historical standards.

External demand offered little relief.

Export growth slowed to a 14-month low, likely weighed down by US tariffs of up to 50% on some Indian goods.

HSBC noted export sales were largely derived from Asia, Europe and the Middle East.

Notably, the Indian rupee’s slide to record lows has yet to deliver the export boost many economists had anticipated.

On the inflation front, input costs rose only slightly, allowing manufacturers to lift selling prices at the softest pace in nine months.

That suggests India’s inflation, which edged up to 0.71% in November from a record low of 0.25% in October, will remain subdued for now - providing the Reserve Bank of India with room to cut rates further to boost weak urban household consumption.

The central bank has now cut rates by a total of 125 basis points since February 2025, its most aggressive easing since 2019.

Against this backdrop, business sentiment dimmed further.

Confidence in future output fell to its lowest level in nearly three-and-a-half years.